The Biggest Reason Workers Don’t Save for Retirement

September 30, 2015

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Why are only about half of American workers saving for
retirement through their workplace? According to the Government
Accountability Office, it’s largely because their employers do not offer
savings plans like a 401(k). Of all the workers who aren’t currently saving
through their employer, 68% work for an employer that doesn’t offer a
plan and 16% are not eligible to participate in their workplace program.
Only 16% could take part but choose not to, a GAO report released today found.

The report takes a step toward understanding why workplace
retirement saving among American workers isn’t more widespread. It suggests
that more people would take part in retirement plans if more plans were
offered. That could help more people be better prepared for retirement and
avoid relying on government programs.

The GAO used data from the 2012 Survey of Income and Program
Participation, a U.S. Census survey that tracks households over a period
of years. It also had access to tax information from the Internal Revenue
Service, which allowed researchers to better track whether households who claim
they don’t have retirement savings actually do but are unaware of it.

Those who have no retirement plan at work, or who do not
participate in it, are more likely to be lower-income, less educated and to
work for smaller firms, the GAO found. Roughly 40.3% of workers in the lowest
income quartile are offered retirement plans through their employer. Among the
highest quartile, 83.9% are.

But even if your boss offers a retirement plan, that does
not necessarily mean you qualify for it. According to the GAO, 44% of workers
in the lowest quartile do not qualify for their plans, as opposed to 3.5% among
the highest-paid quartile. That could be because they don’t work enough hours,
or their job category or location makes them ineligible for other reasons.

Those who have access to a retirement plan are more likely
than not to save, regardless of income, the report found. But lower-income
workers are somewhat less likely than higher-income workers to save, either
because they are unaware of the savings programs or because they simply can’t
afford to put money aside.

To help vulnerable workers prepare for their later years,
states are working on programs that would create automatic savings
accounts for workers who do not have retirement plans through their jobs.
Three state legislatures have already adopted such programs and others are
considering it. The report highlights legal and regulatory obstacles that
states could run into and recommends that Congress and the Obama administration
clarify the rules surrounding state-run retirement programs.